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Difference between Simple Interest and Compound Interest

The following table gives the difference of SI and CI on a principal of Rs. 10,000 at 10% per annum for three years
 

At the end of… Amount (with SI) SI Compound Interest Amount
1st year 11,000 1,000 1,000 11,000
2nd year 12,100 1,000 1,100 12,100
3rd year 13,310 1,000 1,210    13,310

The difference between SI and CI is the interest on interest. In the first case, the interest does not earn anything, while in the second case the interest is added to the principal for purposes of interest calculation. To solve SI and CI sums, one should try to work on the difference and calculate interest on interest.

 

Note that the SI and CI are the same in the first year and changes only in subsequent years.

The difference between six monthly and quarterly compounding is given in the following table. The principal is Rs 10,000 and the interest rate is 12%. It is compounded six monthly in the first case and quarterly in the second case. The period is one year.

 

Six monthly compounding  Interest  Quarterly Compounding       

     

At the end of:

  Interest

 Amount

 

  Interest

 Amount

Ist Quarter

 Nil

10,000

 

300

10,300

IInd Quarter

600

10,600

 

309

10,609

IIIrd Quarter

Nil

10,600

 

318.27

10,927.27

IVth Quarter

636

11,236

 

327.81

11,255.08





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